Tuesday, March 17, 2009
Posted by Jeff Lipshaw
I'm speaking at a University of Dayton Law School symposium entitled "Fallout from the Bailout" on Friday, March 20, and have posted on SSRN the essay on which the talk is based: Disclosure and Judgment: "We Have Met Madoff and He is Ours."
This short essay addresses the role of securities regulation of mortgage-backed in the present financial crisis. While there is certainly a role for securities regulators to play in curing systemic flaws that contributed to the present situation (for example, the regulation of credit rating agencies), the federal system is primarily based on disclosure, not the merit of the underlying security. My view is that the problem here is not the availability of information in the markets for these securities, now or in the past, but judgments made with respect to that information. To paraphrase Kant, judgment without information is empty; information without judgment is blind. Information without judgment gives us bubbles; judgment without information leaves us at the mercy of Madoffs.
In short, I'm a "more disclosure regulation" skeptic, at least as to these securities. Following the dictum that philosophers think very deeply about things that are perfectly obvious to most people, this essay explains why I'm a skeptic.